Finance and Economic Development minister Mthuli Ncube will today present a midterm fiscal policy review statement amid a deteriorating economy despite his claims that ‘zvakarongeka’ (it’s all in order).
The deteriorating environment has been characterised by quickening inflation amid fears the hyperinflationary era is within touching distance.
Prices of goods and services have skyrocketed as the Zimbabwe dollar depreciates against the greenback on the parallel market—the go to for businesses as the foreign currency auction system cannot meet the demands of the market.
The central bank has struggled to release the foreign currency allotted as the backlog swells. This has seen companies turning to the parallel market leading to the routing of the local currency.
Businesses say government suppliers have also led to the depreciating of the local currency as they dump the local currency they would have been paid. This has forced the government to pay its contractors half in foreign currency.
The economic headwinds have pressure on employees and citizens as they struggle to put food on the table. Government employees began a two-day strike yesterday pressing for better remuneration. They say the two-day industrial action is a harbinger for more to come as they plot the mother of all strikes in September.
The ripple effects will be felt across all the sectors, the private sector included.
Today’s midterm review comes against the backdrop of calls for Ncube to review the tax free threshold from the current ZWL$25,000. That those that earn between ZWL$60000 to ZWL$120000 are taxed at 25% is punitive.
Ncube is also expected to review the GDP projections. He had projected the economy to expand by 5.5% this year underpinned by growth in agriculture, mining and tourism.
Agriculture has underperformed with maize output to be 43% lower in the 2021/22 season due to the late start of the season and a mid-season drought experienced early this year.
Ncube had been bullish about the outlook despite the World Bank projecting a growth rate of below 4.3% this year on rising inflation, both locally and globally.
The economy requires tax reviews as the high tax rates fuel non-compliance. There is a huge constituency in the informal sector which is outside the tax system as the government has failed to tap into that. The government should use a carrot and stick approach to ensure compliance.
There could be a temptation to go the populism route as the 2023 elections beckon which gives room for the doling out of sweeteners. However, such short-termism has serious consequences especially on the currency which has been depreciating against the greenback.
The economy is on the edge requiring a fiscal surgery that takes into account the obtaining environment. Dreaming is good but one has to dream within his or her means.
Monetary authorities have rolled out a number of measures such as keeping an eye on money supply to contain inflation. There is need for fiscal complementarity to take the economy out of the doldrums. We failed to do that yesterday. The next best time is now.
